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Could be Early Spring for Gas Prices

The question everyone is asking themselves is why have gasoline prices moved 35 cents a gallon higher since November when crude oil has plummeted to below the $40 mark?Every week brings more economic experts coming out to comment that the state is being sucked into the morass of a recession, does the rise in fuel prices mean another drag on the economy?From August through November, falling gasoline prices acted like a stimulus on the economy — putting another $100 of disposable income in peoples’ pockets.Now, crude-oil futures are bouncing back, rallying more than 10 percent and adding upward pressure on April oil futures.To be sure, gasoline is getting more expensive because production has fallen. At this time of year, refiners limit production for seasonal maintenance. Oil analyst and market expert Tom Kloza sees an early spring this year. “My instincts suggest that Spring has come early this year,” Kloza wrote in response to a reporter’s question. Kloza has been writing about downstream oil markets since 1975 and was among the founders of Oil Petroleum Information Service more than 25 years. He’s seen plenty of trends.“Markets don’t wait, and gasoline already reflects the expectation that refiners will continue to carefully produce only enough product to keep supplies balanced or tight. The 35 cents per gallon or so increase that we’ve seen this year might ordinarily occur in March, April and May.”It’s unheard of to expect gasoline prices to be higher on St. Patrick’s Day than they are on Memorial Day, but something close to that could happen in 2009, he said.Kloza points out that, six years ago during mid-February, crude oil was about $35 barrel. In 2003, future prices for West Texas Intermediate were virtually indistinguishable from today’s figures. Retail gasoline averaged $1.62 gallon. A year later, prices were identical.“Ironically, we spent much of late June 2004 at about $35 barrel for crude and the retail pump price was $1.91 gallon. So, this isn’t really virgin territory when one measures the gap between raw cost and retail number,” Kloza said. “The difference, of course, is that retail prices of $1.91 gallon in late June are understandable, as perhaps are refinery margins of $15 to $40 barrel. That’s when demand is on a clear upward arc, and in some previous years, it was difficult to make enough finished gasoline to keep America moving.Kloza believes motorists could see a national average of $2 gallon or more. “The U.S. economy is all about confidence and sentiment, and many consumers are conditioned so that they regard a price that begins with a ‘2’ as an auger of a ‘3’ or ‘4’ to come,” he said.Manufacturers across the spectrum cut production in an effort to balance supply against future demand. That’s called capitalism. But, when that type of behavior occurs among refiners, it’s not tolerated by the press or public. While it is true that in the Tulsa market, prices moving 5-10 cents a gallon draws attention — it is no more than white noise. Watch it creep over $2 a gallon and people will react the way a bull reacts to a red flag.